Hunting for supercedes with certificates

They are always popular with investors because they pay attractive coupons even if market conditions in recent months are not very favourable. Equity tops and low volatility, with falling rates, make it difficult to build attractive coupon-paying structures. We are talking about investment certificates of the 'conditionally protected capital' type, which are characterised by the fact that at maturity the capital is protected as long as the barrier event does not occur, i.e. that none of the underlyings that make up the basket quote at a level below the level envisaged for capital protection. In the course of their lives, they can also pay coupons on a monthly or quarterly basis.

They are not suitable instruments for everyone as they are very articulated in their construction and therefore one needs to know their functioning well before betting on them. "Certificates," explains Gabriele Bellelli, partner at Zefiro Scf, "are complex instruments, constructed using options, and their price performance is determined by a plurality of variables, which act simultaneously, such as the performance of the underlying, volatility, time to maturity and expected dividends, to name the ones that carry the most weight.

From this point of view, it is essential to study the variables and characteristics of the certificates in depth before making the first purchases. Once selected, it is always best to bet on liquid, well-traded securities. Although there is in fact a market maker, a good liquidity index guarantees smaller spreads and therefore lower implicit costs. But how to choose the right certificate.

'We have selected,' Bellelli continues, 'about ten conditionally protected capital certificates that offer a good risk-return mix. There are several rules to follow for this. First and foremost, select the underlyings that make up the basket of a certificate. From my point of view, the ideal is to favour certificates that are built on indices and on quality underlyings, i.e. companies with good balance sheet numbers and no equity problems. It is also useful to favour certificates built on a single underlying, since they are easier to follow and manage.

A second aspect to consider is the structure and peculiarities that characterise a certificate.